Has Trade Openness Increased all Portuguese Public Expenditures? A Detailed Time-Series Study

AbstractThis work aims at identifying the public outlays that has been influenced by the growth of Portuguese trade openness since the end of World War II. For the Portuguese reality, it is one of the first attempts to discuss a large set of simultaneously tested control variables. For this purpose, the methodology started from a model that tries to the public expenditures to a system of simultaneous macroeconomic forces and, for testing, it followed the steps associated with cointegration analysis. Using the most convenient techniques, a restrictive set of four expenditures (subsidies, interest payments, other current expenditures, and total public expenditures as a proportion of GDP) was found among the wider set suggested by the Literature. The nature of these expenditures supports the claim that, for the Portuguese case, a particular validity of the compensation hypothesis has been observed. The achieved evidence promotes an important rule: in addition to there being a long-term relation between (some) public expenditures and trade openness, short-term relations may also appear.